Census: State’s supplemental poverty level lower than official rate

WASHINGTON — The nation’s poverty rate was 16.0 percent in 2012, unchanged from 2011, according to the supplemental poverty measure released today by the U.S. Census Bureau.

The 2012 rate was higher than the official measure of 15.0 percent. The official poverty rate in 2012 was also not significantly different from the corresponding rate in 2011.

Unlike the official poverty rate, the supplemental poverty measure takes into account the impact of different benefits and necessary expenses on the resources available to families, as well as geographic differences in housing costs. For example, the measure adds refundable tax credits (the Earned Income Tax Credit and the refundable portion of the child tax credit) to cash income, which reduces the supplemental poverty rate for all people by three percentage points (19.0 percent to 16.0 percent). For children, the supplemental poverty rate of 18.0 percent would rise to 24.7 percent if refundable tax credits were excluded.

The supplemental poverty measure deducts various necessary expenses from income; these include medical out-of-pocket expenses, income and payroll taxes, child care expenses and work-related expenses. These expenses reduce income available for necessary basic goods purchases including food, clothing, shelter and utilities (FCSU) and a small additional amount to allow for other needs. Deducting medical out-of-pocket expenses increases the supplemental poverty rate by 3.4 percentage points. Without accounting for medical out-of-pocket expenses, the number of people living below the poverty line would have been 39.2 million rather than the 49.7 million people classified as poor with the supplemental poverty measure.

Without adding Social Security benefits to income, the supplemental poverty rate overall would have been 8.6 percentage points higher (or 24.5 percent rather than 16.0 percent). People 65 and older had a supplemental poverty rate of 14.8 percent, equating to 6.4 million. Excluding Social Security would leave the majority of this population (54.7 percent or 23.7 million) in poverty.

The supplemental poverty measure’s poverty thresholds vary by geography, family size and whether a family pays a mortgage, rents or owns their home free and clear. For example, the 2012 thresholds for families with two adults and two children were around $18,000 for homeowners without a mortgage living outside metropolitan areas in North Dakota, Kentucky, West Virginia, Alabama, Arkansas, South Dakota, Tennessee and Missouri, but around $35,500 for homeowners with a mortgage in the San Jose-Sunnyvale-Santa Clara, Calif., and San Francisco-Oakland-Fremont, Calif., metro areas. The $23,283 official poverty threshold for a family of four was the same no matter where a family lives.

These findings are contained in the Census Bureau’s annual report, The Research Supplemental Poverty Measure, released with support from the Bureau of Labor Statistics and describing research showing different ways of measuring poverty in the United States.

“The important contribution that the supplemental poverty measure provides is allowing us to gauge the effectiveness of tax credits and transfers in alleviating poverty,” said Kathleen Short, a

Census Bureau economist and the report’s author. “We can also examine the effect of necessary expenses that families face, such as paying taxes or work-related and medical-out-of-pocket expenses.”

Estimates for States

The differences between the official and supplemental poverty measures varied considerably by state. The supplemental rates were higher than the official statewide poverty rates in 13 states and the District of Columbia. The states were California, Colorado, Connecticut, Florida, Hawaii, Illinois, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New York and Virginia.

For another 28 states, supplemental rates were lower than the official statewide poverty rates. The states were Alabama, Arkansas, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Vermont, West Virginia, Wisconsin and Wyoming. Rates in the remaining nine states were not statistically different using the two measures.

Comparing Poverty Rates for Different Demographic Groups

The supplemental poverty measure can show the effects of tax and transfer policies on various subgroups, unlike the current official poverty measure. According to the report:

Including tax credits and noncash benefits results in lower poverty rates for some groups. For instance, the supplemental poverty rate was lower for children than the official rate: 18.0 percent compared with 22.3 percent.

Subtracting necessary expenses from income results in higher poverty rates for other groups. The supplemental poverty rate for those 65 and older was 14.8 percent compared with only 9.1 percent using the official measure. Medical out-of-pocket expenses were a significant element for this group.

Even though supplemental poverty rates were lower than the official rates for children and higher for those 65 and older, the rates for children were still higher than the rates for both 18- to 64-year-olds and people 65 and older.

Supplemental poverty rates were higher than the official measure for all race groups and for Hispanics, with one exception: blacks, whose 25.8 percent supplemental poverty rate was lower than the official rate of 27.3 percent.

Supplemental poverty rates differed by region primarily because the supplemental poverty rate has thresholds that vary geographically. The rates were higher than official rates for the Northeast and West, lower in the Midwest and not statistically different from the official measure in the South. These results reflect differences in housing costs, which are not captured by the official poverty measure.

Background

The supplemental poverty measure is an effort to take into account many of the government programs designed to assist low-income families and individuals that were not included in the current official poverty measure, released Sept. 17.

While the official poverty measure includes only pretax money income, the supplemental measure adds the value of in-kind benefits, such as the Supplemental Nutrition Assistance Program, school lunches, housing assistance and refundable tax credits. Additionally, the supplemental poverty measure deducts necessary expenses for critical goods and services from income. Expenses that are deducted include taxes, child care and commuting expenses, out-of-pocket medical expenses and child support paid to another household.

Today’s report compares 2012 supplemental poverty estimates to 2012 official poverty estimates for numerous demographic groups at the national level. In addition, the report presents supplemental poverty estimates for states using three-year averages. At the national level, the report also compares 2011 supplemental poverty estimates with 2012 estimates.

There has been a continuing debate about the best approach to measure income and poverty in the United States since the publication of the first official U.S. poverty estimates in 1964. In 2009, an interagency group asked the Census Bureau, in cooperation with the Bureau of Labor Statistics, to develop a new, supplemental measure to allow for an improved understanding of the economic well-being of American families and the way that federal policies affect those living in poverty.

The measures presented in this report used the 2013 Current Population Survey Annual Social and Economic Supplement with income information that referred to calendar year 2012 to estimate supplemental poverty measure resources, including the value of various in-kind benefits beyond cash income. (The official poverty measure is based solely on cash income.)